Financing Gap DefinitionDefinition of the financing gap
Financing equity: the capital gap
This gap between these two financial positions is referred to as the capital gap. Companies in this position can turn to privately owned companies for help. They are organizations that make and maintain investment and have a tendency to concentrate on managerial buy-outs and buy-ins. Governments are making available a multi-million Pounds Capital Financing Programme to fill the capital gap by making available ECFs (Enterprise Capital Funds).
Global Infrastructure Financing Gap - European International Workshop for Contractors and General Assembly
From 12 to 13 October 2017, the European International contractors ("EIC") gathered in Paris to debate the Global Infrastructure Funding Gap. Infrastructures are the main bodily component of our societies and are as follows in the Collins English Dictionary: "Infrastructures of a nation, company or organization consist of the fundamental elements such as transportation, communication, energy supply and premises that allow it to function" [other critical infrastructures include utilities, electricity and general government services].
In simple terms, the gap between the funds needed to sustain and construct the existing infrastructures and the funds actually available is the Funding Gap. Therefore, a deficit in the financing of infrastructures is a very serious problem, and the Global infrastructure financing gap is expected to exceed USD 1 trillion per year, and rising.
Aim of this workshops was to listen to leaders about the extent of the issue and what is being done to tackle it, and to share our own experience, approaches and possibilities that new generation financing of infrastructures offers. KPMG's Christian Jabre and CICA representative Roberto Morrison each presented their analyses of the extent of the gap in financing infrastructures from a worldwide point of view.
Jabre emphasised that the gap is growing, particularly in endangered areas such as Africa, while Morrison drew particular attention to the financing gap in Latin America, which is expected to widen from a historic under-investment of 2.3% of GNP to 4.3% of GNP by 2030. Salim Bensmail (Head of the French Ministry of Economy and Finance) outlined some of the keys to financing French government infrastructures, where there is an expected 10 billion financing gap over the next 5 years for transport alone.
In general, the EU stance was defined by Alessandro Carano (Cabinet Member of the European Commissioner for Transport), who has very successfully started to close his financing gap under the EU Capital Plan (also known as the "Juncker Plan"). Under the Juncker Plan, three mainstays are used to promote investments in European infrastructures as follows:
Mobilisation of financial resources and crowding-in by the European Strategic Investments Fund, which is worth EUR 21 billion in EU funding and is estimated to mobilise EUR 315 billion in retail investments by the end of 2017. Ensure focused financing reaching the mainstream economies and improve the attractiveness of capital investments, notably through Member State and investor assistance and know-how, through the European investment advisory hub and the European investment portal.
Improve the EU investing climate, notably through EU internal regulation frameworks (e.g. Capital Markets Union and Internal Energy Strategy and Union) and EU Member State structure frameworks to assess the business climate for investments. Despite the fact that there is still a financing gap in the EU, the Juncker Plan, which is constantly boosting financing for infrastructures, gives cause for hope and its recent capital expenditure objective has been raised to half a trillion euro by 2020.
During the second meeting, the role of institutions in tackling the financing gap was discussed, with an emphasis on investments in emerging economies. Keyword of the event was "crowding-in-home" as the new wave of financing for sustainable growth puts a powerful emphasis on mobilizing the rural economy to help fund infrastructures and related growth initiatives.
Presenters from the Long-Term Infrastucture Investors Association (Eugène Zhuchenko), the Asia Infrastructures Investment Bank (Ian Nightingale), the French Development Agency (Rima Le Coguic) and the Directorate-General for International Cooperation and Development of the EU (Roberto Ridolfi) all debated their work to encourage and support investments in infrastructures in developing world.
All of these organizations are putting into practice a new breed of inclusive strategies that focus on better investing, sustained growth and new and hybrids financing tools. Particularly noteworthy and an example of this new-generation development policy is the new EU external action plan to support Africa's and the EU's neighbours' sustainability1 .
It was launched on 28 September 2017 with the European Sustainable Development Fund (the "Fund"). EIP is built on the same structural framework as the Juncker Plan, which includes three columns aimed at encouraging consumer investments. By 20203, the European Commission anticipates that the EIP will increase EUR 44 billion in personal investments, which, despite its modest approach, is a significant amount compared to the Juncker Plan's new half trillion goal of three pillars:
4.1 billion has been allocated to the European Sustainable Development Fund. It will provide a new set of financing tools including guarantee, risk-sharing and the mix of subsidies and loan (building on the financing provided under the Juncker Plan). Increased provision of technological support to help partners to identify sound financing schemes and to help companies to invest.
Strengthen EU dialogues with partners and engage in a structured dialog with the wider private sectors to enhance the investor confidence and operating conditions in them. Main objectives of the plan: Underpinning the EIP is the EU's engagement with the 2016 United Nations objectives for sustained development, such as sustained growth, empowering and eradicating gender inequality, the Paris Convention on Climate Change and the 2016 perception of migratory crises.
As a consequence, those EIP funded or guaranteed project must make a contribution to these obligations and migratory questions. That means that while more traditionally large-scale infrastructural and renewables related capital expenditure is still part of the EIP scheme, it will also support small and medium-sized businesses, both in the EU and in developing country, and it will address targeted socio-economic sectoral and vulnerable areas of Africa and the neighbourhood where FDI is currently challenging and underestimated.
Most importantly, the Commission and a "Strategic Council", which for the first instance held on 28 September 2017, will monitor the EIP's progress and define areas for investments which will be referred to as "investment windows". It will then lend resources and a project portfolio to twin financing entities, such as the European Investment Bank and the European Bank for Reconstruction and Development4 , which will be managed for particular political objectives/investment window.
An EU company can request funds from a counterpart finance institute for investments that fall within an assigned scope of investments and also fulfil the sustainability promotion requirements. EIP's main role is to provide more immediate opportunities for enabling participation of individuals in investments in development infrastructures and the Commission has indicated that it will consider establishing partnership with companies in the EU and Africa, both project-based5 and with individual finance institutes.
Initial investor window is likely to be published at the EU-Africa Summit on 29 and 30 November 2017, with the objective of concluding the first guarantees with banks in the first trimester of 2018. In view of the Juncker Plan's past achievements, there is also reason to be optimistic about the EU's ambitions for an integrated approach.
As the world populace grows further, the impact will be devastating if we cannot close the growing financing gap in infrastructures, especially in endangered areas. Juncker offers a powerful mechanism to fill the financing gap that was so far indisputably filled when investments in Europe's infrastructures were made by people.
These new generations of financing for investments have been adopted by the banks presented in the second meeting, which all appreciate the need for and adapt to a new financing policy for infrastructures, albeit in more difficult areas than the EU. Fenwick Elliott is a building and power company working on both front-end and back-end infrastructural investments, and we are conscious of the difficulty of investing in infrastructural assets, particularly in development areas.
While we will keep a watchful eye on the development of this new wave of financing for infrastructures, we look forward to contributing to its further development.